Jazz Air Income Fund has set a yield of between 9.5 and 10.5 per cent to attract investors as it kicks off a road show today to promote the regional airline.
The proposed yield for the new income trust is on the high end of the expectations of analysts, who had forecast that Jazz could offer a return as low as 7.5 per cent and as high as 10.75 per cent.
ACE Aviation Holdings Inc., the parent company of Air Canada, will retain a majority Jazz stake of between 80 and 85 per cent, according to Jazz's confidential information memorandum sent yesterday to institutional investors.
The memo comes six weeks after Montreal-based ACE filed Jazz's preliminary prospectus. It will be ACE's second spinoff, after the launch in mid-2005 of loyalty program Aeroplan Income Fund.
Jazz's initial public offering could be worth at least $175-million, placing a value of roughly $1.1-billion on the entire trust, according to the memo.
The road show begins today in Montreal, followed by presentations tomorrow in Toronto, next Monday in Calgary and wrapping up Jan. 19 in Vancouver.
"Starting in July, 2006, Jazz is expected to benefit from the full impact of its scheduled 10-per-cent fleet expansion to 135 aircraft," the memo said. "In 2007, Jazz will enjoy a full year of revenue from the larger fleet."
Plans call for nearly 17.5 million trust units to be issued at $10 apiece, but should there be strong investor demand, another 2.6 million units could be sold under an overallotment option.
CIBC World Markets Inc. and RBC Dominion Securities Inc. are leading the Jazz IPO. If a 15-per-cent interest is sold in the first tranche and the overallotment option is exercised, that could translate into the sale of a 17.25-per-cent stake in Jazz. Final pricing for the IPO is slated for the week starting Jan. 23, and the transaction is scheduled to close the week starting Jan. 30.
Jazz spokeswoman Debra Williams declined comment yesterday.
The memo emphasized Jazz would be a source of stable income as it is effectively a charter airline booked by Air Canada for regional flights. "The fees for flights flown are mainly based on the number of aircraft operated and the number of hours flown by these aircraft."
Under a so-called capacity purchase agreement with Air Canada, Jazz incurs costs for pilots and planes, but it receives a steady stream of revenue from Air Canada, even if a flight is half empty.
"Jazz is targeting an initial annual distribution of $107.5-million, based on a 90-per-cent payout of its cash available for distribution, through equal monthly distributions," according to the memo.
© The Globe and Mail
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